What is Conversion Arbitrage?
Conversion arbitrage is an investment strategy that essentially involves three specific actions that take place at the same time. The execution of this type of arbitrage approach is understood to be relatively risk free for the investor, while still having the ability to strengthen the investing position as it relates to the overall stability of the investment portfolio. Sometimes referred to as a long option box, the conversion arbitrage will always involve elements that carry the same expiration date and exercise price. The three transactions that make up a conversion arbitrage are very simple. The first transaction involves the purchase of an asset. This stock transaction is sometimes referred to as acquisition of the underlying, and forms the foundation for the process. Occurring simultaneously with the purchase of the underlying asset is the purchase of a put option. This put option will have the same exercise prices and the same expiry date as the underlying asset. It is essentia
